Business News
How to reduce your Corporation Tax next year
Follow our 5 easy steps and reduce your Corporation Tax payments in the next financial year.
1 – Timing of income
If you can delay or defer income until after your year end, this can reduce your Corporation Tax (CT) bill, but only in the first year.
2 – Find expenses
You might find that expenditure in the first few months of a new financial year really belongs to the old year. If the old accounts haven’t yet been finalised, then you can have them changed to include these expenses and reduce the CT bill for that year.
The following are allowable expenses you should look for in order to reduce your CT bill:
• Accountancy fees. Additional costs relating to in-depth investigations by HMRC are only allowable if they do not result in the reopening of an earlier year
• Advertising
• Bad debts. Doubtful debts are allowed only in specific circumstances; round figure provisions are not allowed
• Donations to charities where your business or staff may benefit, e.g. a local hospital
• Employees’ salaries and wages, including those paid to your spouse and children, provided the amount is appropriate for the duties performed
• Gifts to customers which are a form of advertising; not consisting of food, drink, tobacco or a gift token; and where the cost does not exceed £10 per customer
• Hire purchase charges
• Incidental costs of raising loan finance
• Insurance premiums for Employer’s Liability, fire, etc
• Interest paid gross on loans for the trade
• Lighting, heating, uniform business rate but subject to apportionment if the proprietor shares the premises
• Legal costs in connection with disputes with customers, preparation of service agreements, bad debts, defending business rights, and damages arising in the course of trade
• Lease renewals where the renewal period is less than 50 years
• Loss from burglary, theft or an employee’s embezzlement where not covered by insurance
• National Insurance contributions by employers
• Patents, trademarks, etc. The costs of applications for the grant or renewal, whether successful or not
• Pension contributions for employers and employees
• Redundancy payments to employees
• Rent paid, including a proportion of any lease premium
• Renewal of shop front and renewals of short life plant and machinery, such as loose tools
• Repairs except for any element of improvement
• Scientific research
• Subscriptions to certain trade associations and professional bodies
• Travelling expenses
3 – Take a bonus?
Taking an annual dividend, rather than a deductible bonus, is majorly tax effective.
4 – Employers pension contribution
Your business is entitled to full tax relief for the pensions contributions it makes to your pensions fund, providing the amount of the contribution is not considered excessive by the Taxman.
However, it is important that the paperwork provided by the employer clearly shows that the person who is paying the contribution is not you.
5 – Capital Allowances
The Taxman will ignore your company’s depreciation figure when calculating its taxable profit. Instead, he lets you claim Capital Allowances.
Of course, this can only really have an impact if you spend a lot on fix assets during a financial year.
As a rule of thumb, you’ll have more tax to pay than your accounts suggest if your depreciation rates are higher than the rates for Capital Allowances.
